Amtek Auto is India’s second-largest auto components company, with revenues of INR156bn. It has a global market share of 20% in turbocharger housings and 15% in ring gears. Amtek Group has been very aggressive with capex and acquisitions [Tekfor and Kuepper] in the past — this has not played out as expected by management, due to Corrupt Governance & Policy Paralysis during Sonia Gandhi’s Congress Regime in the key markets of India (57%) and Europe (~37%) led to significant debt build-up. Amtek management is now focused on improving return ratios and generating free cashflows, which should be taken positively by the market.
Amtek is a high-beta play on recovery in the domestic automotive industry. Since it has nearly all OEMs among its customers, we also see Amtek as a more diversified play on the upcycle. Attractiveness of India as a small-car export hub, vendor consolidation and thrust on localisation by OEMs augurs well for medium-term growth prospects at large vendors like Amtek in the medium to long term.
EPS Expectations
Amtek is expected to deliver a 27% revenue CAGR over FY13-16F (financial year ends in September). Amtek Auto stock is trading at P/E of 5.7x FY14F EPS of Rs35.1 and P/E of 4.5x FY15F EPS of Rs45.2.
A 16% CAGR in domestic revenues, led by a potential recovery in the domestic automotive industry volumes and a pick-up in the industrial capex cycle will aid the recovery along with new orders worth USD1bn already won over the last year – these will be executed over the next 5-7 years. Vendor consolidation by OEMs to minimise costs and logistics efforts will bring more new orders to larger vendors like Amtek Auto.
Investors Can Accumulate the Stock on Correction as it has run up too fast in the last 2 months ahead of the Benchmark Rally.